Who Suffers If U.S. Exports to China Falter?

by Jim Woods | March 30, 2012 12:19 pm

Who Suffers If U.S. Exports to China Falter?

I’ve recently gone on record saying that all the chatter about China’s so-called “hard landing” is more fear than reality[1]. Yet it is a fact that China’s economic growth rate is decelerating, and that could pose problems for companies who do a lot of exporting to the country.

This week, the U.S.-China Business Council[2] released a report detailing the rise of U.S. exports to China, which has passed the $100 billion mark for the first time.

According to the report, American exports to China reached a record $103.9 billion in 2011, with 30 U.S. states now counting China among their top three export markets. As a buyer of U.S. goods, China ranks behind only Canada and Mexico. This big number represents a whole lot of jack captured by companies exporting to China. Unfortunately, if China’s economy does continue slowing, there also would likely be a slowdown in goods sent to the country from the biggest U.S.-based exporting companies.

Precisely which companies in which industries would get hurt most by an overall deceleration in China economic growth is hard to determine, but if we look at the sectors with the highest exports to the country, we can determine a few likely candidates.

Here’s a quick breakdown of biggest exporting sectors, and the biggest U.S. exporters:

Crops: The U.S.-China Business Council report calculates that China bought $14.7 billion in U.S. crops in 2011. Some of the biggest U.S. agricultural companies exporting to China are Archer Daniels Midland (NYSE:ADM[3]), CHS (NASDAQ:CHSCP[4]) and Monsanto (NYSE:MON[5]). Recently, China agreed to import 8.62 million metric tons of soybean oilseed from U.S. suppliers, a pledge valued at around $4.3 billion, and Archer Daniels Midland and CHS will play a big role in those exports.

Computers & Electronics: China bought $13.7 billion worth of computers and electronics last year. This is a broad category, but some of the biggest tech firms exporting to the nation are Apple (NASDAQ:AAPL[6]), Applied Materials (NASDAQ:AMAT[7]), Intel (NASDAQ:INTC[8]) and Microsoft (NASDAQ:MSFT[9]). Apple has come under scrutiny for the working conditions at Chinese firm Foxconn, which manufactures iPhones, but the fact is the company also sells tons of products to the Chinese consumers. For the fiscal year ended Sept. 24, 2011, Apple’s net sales in China were $12.5 billion, which is about 11.6% of the company’s total revenue.

Chemicals: China bought $13.6 billion of chemicals in 2011. Big exporters in this group include Dow Chemical (NYSE:DOW[10]) and DuPont (NYSE:DD[11]). In Dow’s case, the company’s latest earnings data reveal that overall sales volume was flat; however, there was a decided spike in emerging-market sales of 7%, and that number was led by sales from China, which saw a 12% rise in volume.

Transportation Equipment: China bought $13.2 billion worth of transportation equipment last year. Here the big exporters are Caterpillar (NYSE:CAT[12]), Deere & Co. (NYSE:DE[13]) and General Electric (NYSE:GM[14]). Caterpillar recently announced plans to expand production in China, where it hopes to increase output of its hydraulic excavator units by 80%, with a new facility slated to be completed in 2016. Chinese sales growth is key to Caterpillar’s expectations for record sales and profits this year.

If China’s “hard landing” ends up being harder than I think it will, then exports by U.S. companies feeding the China machine likely will be knocked for a loop. That definitely could take a bite out of the top and bottom lines of the aforementioned big exporters.

If you own one or more of these giant firms, be advised that a China hard landing also could land hard on your portfolio.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

Endnotes:
  1. more fear than reality: http://investorplace.com/2012/03/china-all-hard-landings-should-be-so-soft
  2. U.S.-China Business Council: https://www.uschina.org/public/exports/2000_2011/full_state_report.pdf
  3. ADM: http://studio-5.financialcontent.com/investplace/quote?Symbol=ADM
  4. CHSCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHSCP
  5. MON: http://studio-5.financialcontent.com/investplace/quote?Symbol=MON
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. AMAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMAT
  8. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  9. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  10. DOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=DOW
  11. DD: http://studio-5.financialcontent.com/investplace/quote?Symbol=DD
  12. CAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAT
  13. DE: http://studio-5.financialcontent.com/investplace/quote?Symbol=DE
  14. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM

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